73 AI continues to reshape technology mergers & acquisitions by expanding diligence, representations & warranties, and contractual risk allocation. Artificial intelligence (“AI”) M&A has matured rapidly over the past decade. Early transactions centered on software platforms, data analytics engines, and, more recently, the use of generative AI models. The transactional focus in those deals was relatively predictable: intellectual property ownership, open-source exposure, data rights, privacy compliance, and talent retention. A structural shift is now underway. AI is increasingly embedded in physical systems, autonomous drones, robotics platforms, medical devices, industrial automation systems, advanced driver assistance technologies, and defenseadjacent hardware. This emerging category, commonly described as “physical AI”, fuses machine learning with hardware, sensor arrays, and realtime actuation systems. For M&A practitioners, particularly in the US-Israel corridor, where cyber, robotics, med-tech, mobility, and defense technologies are highly active sectors, physical AI materially alters the negotiation and drafting of representations & warranties (“R&Ws”), indemnification structures, and IP risk allocation. This short article aims to examine how AI is reshaping transactional practice and reframing diligence and documentation. It focuses on emerging AI R&Ws, AI tooling, and the alignment of AI risk allocation with traditional productliability constructs in physical AI transactions. Introduction: The Israeli M&A Market in 2025 Israeli technology M&A in 2025 reflected a market of contrasts: record exit values driven by a small number of concentrated mega-transactions, alongside continued discipline in broader deal pricing and volume. At the same time, AI has shifted from being a product feature to becoming a core enterprise value driver. In AI-centric transactions, value increasingly depends on data rights, training pipelines, governance controls, and where AI is embedded in physical systems, safety validation and product liability posture. The Israeli M&A market in 2025 was defined not merely by resilience, but by pronounced concentration of value. According to year-end reporting by Startup Nation Central, Israeli high-tech M&A activity in 2025 reached approximately $74.3 billion across 150 transactions. When including follow-on deals and IPOs, the aggregate value of all tech exits and transactions reached approximately $89.8 billion according to PwC Israel, the second-largest total in Israeli tech history, surpassed only by the $100+ billion recorded during the IPO boom of 2021. A substantial portion of this figure was attributable to a limited number of megatransactions, particularly in the cyber sector, including the $32 billion acquisition of Wiz by Alphabet, the $25 billion acquisition of CyberArk by Palo Alto Networks, and ServiceNow’s $7.75 billion acquisition of Armis. This concentration matters. In markets where a small number of headline transactions account for a material portion of annual value, valuation signals can become distorted. The “average deal” may look robust, while the “median deal” remains comparatively disciplined. Indeed, excluding Wiz, the average acquisition size fell 40% to approximately $160 million – a reminder that headline statistics can obscure the broader market. For transactional counsel, the practical implication is that buyer scrutiny often intensifies even as aggregate market statistics improve. Where strategic acquirers pay premiums for deep infrastructure capabilities, including cybersecurity architecture, AI platforms, proprietary datasets, and advanced R&D teams, diligence and drafting expand to address the specific failure modes of those assets. Israeli M&A is structurally shaped by a high proportion of cross-border buyers and by the country’s exportoriented technology sector. According to the Israel Innovation Authority, high-tech activity accounts for approximately 17% of national GDP (NIS 317 billion) and continues to dominate Israeli exports, reaching 56.4% of total exports in 2024 and rising to 57.2% by the first four months of 2025, the highest ratio ever recorded. As a result, the diligence baseline for Israeli targets is often set not by Israeli law alone, but by ISRAEL — MERGERS & ACQUISITIONS
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